Board Composition and Organizational Performance: Two Studies of Insider/outsider Effects

Abstract

This paper presents two studies that examine the commonly held belief that corporate boards are more likely to have positive eects on organizational performance when composed of outside directors. The ®rst study ± a meta-analysis of 63 correlations ± indicates that, on average, the greater presence of outsiders is associated with higher performance, but so too is the greater presence of insiders. Instead of providing evidence of a positive outsider eect, these results suggest the existence of a curvilinear homogeneity eect in which performance is enhanced by the greater relative presence of either inside or outside directors. The second study ± a hierarchical polynomial regression analysis of data from 259 large US companies ± con®rms the existence of a curvilinear relationship between insider/ outsider composition and performance measured as return on assets.

Evaluating the Board of Directors of Financial Intermediaries: Competencies, Effectiveness and Performance

“…On the contrary, other studies suggest that appointing independent directors to the board has a positive effect on performance (Barnhart and Rosenstein, 1998;Kaplan and Reishus, 1990;Pearce and Zahra 1992;Rosenstein and Wyatt 1990). Lastly, Wagner et al (1998) maintain that the best performance is linked to a balanced membership of both executive and non-executive independent directors, a conclusion which supports the appointment to the board of equal numbers of directors from the two groups, and represents a suitable agreement between the various results analysed hitherto. One of the reasons, in fact, explaining the differences in the conclusions reached by the various studies stems from the consideration that, as a rule, a larger number of independent directors is appointed during particularly critical situations for companies, as a means of signalling to the market a greater transparency and effort, with respect to the implementation of internal control systems.…”

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Improving corporate performance by enhancing team dynamics at the board level

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